Fallout from the property market slump.

http://www.interest.co.nz

Hello. I'm Bernard Hickey with daily briefing from http://www.interest.co.nz...
Today, we'll look at a couple of pieces of fallout from the property market slump.
We're now seeing a sharp acceleration in rentals as property investors look to boost their yields to compensate for the end of the era of capital gains...
And we'll look at the first of the likely victims from a sharp fall in the number of houses sold. That's the real estate agents and mortgage brokers who depend on a cut from each deal to survive.
Story 1,
But firstly, we look at rentals and signs they are accelerating.
Figures compiled by Massey University showed the median rental increased 3.4% in the space of 3 months.
Over the year the median is up 7.1%. That is more than double the general inflation rate. Some areas are seeing big increases. Rents in Invercargill rose 18.7% and were up 15.3% in Lower Hutt. Napier rents rose 12%.
So what's happening here.
House prices are dropping and the economy is slowing, but rents are rising. That doesn't seem to make sense on the face of it.
But let's look a little deeper.
In recent years many property investors bought rental property in the hope of big capital gains. They also didn't mind making a loss from the property itself because they could use that offset against their regular income and pay less tax. They assumed they'd be able to make it all back with the capital gain. Some landlords were receiving yields as low as 2-3% on their properties as recently as last year.
Now the era of easy capital gains is over and landlords are looking for ways to increase their yield.
Falling house prices will help. But landlords also face higher rates and higher mortgage costs. So they're increasing rents.
You'd have to suspect that rents are likely to rise more than 10% this year.
That's another piece of bad inflation news for the Reserve Bank and is another factor meaning it is unlikely to cut official interest rates this year.

Story 2
And now for some more fallout from the housing market slump.
There were around 20,000 real estate agents working at the end of last year. That number has jumped sharply in the last few years as the housing market boomed and volumes surged.
Now that the volumes of home sales is down around 30-40% each month from a year ago, you'd expect a good number of those agents to chuck it in.
They rely on commissions for most of their income so fewer sales means lower income. You'd have to expect a good 5000 to 6000 would leave the industry in the next couple of years.
The other angle here is that mortgage brokers will also feel the pain. Most of their business is generated by real estate deals.
Most people hunting for a new mortgage are moving house or buying for the first time. These brokers also receive the bulk of their revenues in a commission on each new mortgage written.
So when there's a 40% drop in the number of new mortgages written then that will reduce their income.

I'm Bernard Hickey from interest.co.nz with the Daily Briefing. We'll see you on Wednesday.

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[dynamoehummm]

Is the market similar in Z? And that 10% increase, I wonder who is going to pick up, or portfolio, foreclosures, won't sell, so rent them out for 12-? months. Someone's going to see that diseconomy and $.

Youve got great content, good delivery, and if I can offer the only suggestion in otherwise perfect spot?

Raise your reader up some.. you got the polish but I notice when u look down maybe 20cm.. Thanks informative professinoal and made me think in ma headbone ;)

[dynamoehummm]

I apologize I lost my 'u' key lol. Anyway that business team had efficiencies for me, and surely for them. Hmm.

One question to ya.. rentals i assume single family or what we normally would be purchases. Here rentals rent monthly at 1-3% of the props market value. I didn't realize the lower end props seem a much more profitable and safer investment. More toward the 3% and if its vacant 2months.. well ya got 4. Or 1 exp house more toward 1%/mo. And goes unleased for two months? Yikes.

[dynamoehummm]

Hmm. Greetings from tha Repblic of TX.

It seems one more effect is if 40% drop affects RE and MO brokers not by 40 off there income, bt the trnover common in both rises; as RE agents made over the initial learning crve can't withstand this sqqeeze.. 10 and 15 yr careers end. As well as bsiness realtionships. My acct, set me my bnker, ins, MO RE agent, he had a 'team' of sorts. Easier for me, etc. Bt now that team, the MO may go, maybe the RE focises on low end tract hoose rentals..

[StagsRoar]

Many thanks - that does help explain some matters.